It does say that you cant do it with out their permission but haven't they given that permission?

I mean what constitutes permission?

TOS listings are always confusing. I cant believe it means what it seems to be implying. I mean not only would you need Sony's permission for Sony titles, but even if its a third party, you need their permission and Sony's.

Yes, similar to the PS3 system today, PS4 will not restrict players from playing disc-based used games. When a gamer buys a PS4 disc, they have right to use that copy of the game, so they can trade-in the game at retail, sell it to another person, lend it to a friend, or keep it forever. Furthermore, users will not have to go through activation steps or be charged usage fees when playing used disc-based games on their PS4 system.

Will any PS4 titles use an Online Pass?

First-party titles on PS4 (titles developed by Sony Computer Entertainment) will not use an Online Pass program. When it comes to third-party titles, PlayStation won’t dictate the strategy of publishers concerning Online Pass programs. However, most third parties have phased out the use of Online Pass systems, so they’re unlikely to appear on PS4.

I thought SONY would allow used disc-based games. Do i remember wrong?

No you remember correctly.

Maybe this was posted in error and that TOS was actually drawn up a while back, but has now been revised.

There have been rumors that Sony had been considering some sort of drm scheme that might have been similar to MS' but changed those plans partially after seeing the reaction to MS' plans. If that was true at all, maybe this is an old TOS that reflected whatever system they had in mind.